Keeping construction contracts consistent

A Scottish hydro project has been subject of a Court of Appeal judgment in England, in a case which holds a couple of salutary lessons for developers and landowners across the renewables sector.

The case of RWE Npower v J N Bentley Limited began with a dispute over what was included in"the Works". The contract related to a large hydro scheme and used the NEC3 contract – familiar to many in the renewables sector. NEC3 contracts rely heavily on supporting documentation. In this case, the supporting documentation could support a number of views of what the exact scope of the works was. Inconsistent wording together with summaries and abbreviations peppered the various documents incorporated into the contract. When problems arose during the construction phase, the two parties (the developer and contractor respectively) fell into dispute regarding the exact scope of the contractor's obligations.

There are a number of important lessons here, which should be heeded on all construction and renewables projects, large and small.

Firstly, where a construction contract has numerous separate component parts, a comprehensive read-through prior to signature is worth the time spent. While discrepancies can be minor, in the case of RWE Npower, the parties clearly felt they had solid enough grounds to litigate all the way to the Court of Appeal – the discrepancy was not straightforward enough to be resolved by the parties themselves.

Secondly, while lawyers favour"hierarchy clauses", the court noted these should only be used as a last resort."Hierarchy clauses" state commonly that, where there is a discrepancy, one set of documents will take precedence over another within the same contract. The Court of Appeal thought that approach was flawed – the contract documents must be read together to see if a sensible resolution to the inconsistency can be taken from the contract"as a whole" - before the"hierarchy" provision is applied. In short, in the construction context, the lawyer must read the technical documentation before finalising his or her drafting.

Finally, an observation on legal fees. The contract in RWE Npower case was a sizeable one, valued at around £4m. Notwithstanding the size of the contract, both sides may have spent vast sums in legal costs litigating around a drafting error in the underlying documentation. It may have been wiser for both parties to invest time and legal fees upfront to ensure the contract was consistent, rather than incur substantial litigation fees later in the day.

For more information on this case, or other issues affecting similar contracts, please contact the Construction and Renewables Teams at Turcan Connell.